Select Committee on Transport, Local Government and the Regions Fifteenth Report

Part 2: Financial Administration

21. Part 2 imposes new duties on local authorities
about how they set and monitor their budgets. On the basis of
the Minister's evidence we are concerned that these Clauses have
been drafted with two or three failing authorities in mind. He
referred to Hackney and Walsall on numerous occasions. He had
insufficient regard to the fact that these are general powers
which could be applied to any authority. As a result this Part
of the draft Bill is seen by councils as evidence of a lack of
trust in local government by central Government. The memorandum
from the Society of Local Authority Chief Executives described
Part 2 of the draft Bill as evidence of the "prevailing
attitude of mistrust of local government."[28]
We did not receive any evidence that had these particular measures
been in place they could have prevented financial imprudence.

23. Some councils may choose to operate with low
levels of reservesprovided that they are prepared to take
appropriate action as and when necessary. A clear national statement
from Ministers about what is an "acceptable" level of
reserves may also make it far harder for individual authorities
to deviate from national standards, despite good, local, management
reasons. We heard from Wolverhampton City Council:

"We believe that we are a well-run financial
authority; we have no records of overspending against budgets;
as we regularly take monitoring reports to members. If the Secretary
of State were to use this power in a fairly casual way, without
a full assessment of local circumstances, I could envisage a situation
where Wolverhampton's minimum reserve level would have to be increased.
At the moment we are quite confident that we can manage a contingency
reserve of £2 million. If that had to be increased, the council
would be faced with the difficult choice of either cutting services
or increasing the council tax."[30]

"In the sense of it being a professional
requirement on the local authority treasurer, that is already
there. In terms of best professional practice, invariablyand
again if you look at Audit Commission work in this areayou
do not find the vast majority of local authorities being unaware
of the in-year budget position. Indeed, there is a regular cycle
of reporting, as is commonly known. We are developing our guidance
into a professional practice standard for those treasurers who
are CIPFA members, that is coming out later this year. We would
say in the vast majority of authorities that in-year budget monitoring
is part and parcel of the professional round and it is acknowledged
that it is an essential element of financial management."[33]